IMPACT OF GLOBAL RECESSION ON INDIAN AIRLINE INDUSTRIES
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ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF RESEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
IMPACT OF GLOBAL RECESSION ON INDIAN
AIRLINE INDUSTRIES
Oshma Rosette Pinto
Research Scholar, JJT University, Jhunjhunu, Rajasthan, India
Email: pinto.rosette@gmail.com
ABSTRACT
In 2008, the United States underwent a major down turn in their economy
that spread to many developing nations which gave rise to financial crisis in
the world. The Companies of United States were not certain about their
budgets due to the slowdown in the economy in United States. The new
project and business starts had been delayed because of the uncertainty
which definitely impacted the Indian airline industry.
The recession which started slowly affected the economic sectors including
the airline industry of India. As the cash starved managements started
looking for cost cutting measures, layoffs started to come in to action. Some
people have lost their jobs already. The new recruitments are going at a
slow rate. Currently, the market is not great for the airline industry in India
and also the same for the rest of the world.
This paper attempts to analyze the impact of recession on operations of
Indian Airline industry and to analyse the policies that were undertaken by
Government of India to curb recession on Airline Industry.
Keywords: Operations, Government policies, Airline industries, Economy
INTRODUCTION
The Indian airline industry showed a significant growth after liberalization in mid nineties
due to the entry of private service airlines. As there were more flights coming in to business
in India, the number of job opportunities in the Airline sector had also gone up. Students had
started signing up for courses like airline Pilots, flight attendant's and ground crew. The job
growth rate, salary and perks were pretty high. When operations of airline industry was at
its peak, US economic recession came into existence in 2009. India felt that the recession
would not affect the economy of our country, but the hopes were shattered.
Unfortunately, most major airline operators in India such as Air India, Indian Airlines, Jet
Airways and Kingfisher Airlines have reported large losses since 2006, due to high aviation
turbine fuel (ATF) prices, rising labour costs and shortage of skilled labour, rapid fleet
expansion, and intense price competition. The problem was also compounded by new
players entering the industry even before the existing players could stabilize their operations.
As a result of the already weak domestic scenario, the airline industry suffered even further
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100ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF RESEARCH IN COMMERCE & MANAGEMENT
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when the recession hit India, which exacerbated all these factors. Currently it is a sober
moment for the airline industry in India. Anyone who have lost their jobs in the airline
industry in the recent recession should consider this situation as a chance to refurbish their
skills. Going back to flight school and getting some more certifications while the market is
running low would be a smart idea. Polishing the skills will keep the people in great shape
once the economy will be back on its feet. Once the Indian economy is back on the run
again, any additional skills learned while the economy is dragging could be a great asset for
all of those who have lost their jobs.
LITERATURE REVIEW
In emerging economies, growth has slowed down appreciably in the year 2009. The overall
recruitments were lower for the industry as companies remain cautious amidst the global
financial crisis. [Srivastav, 2009] .
The growth in real wages had slowed down globally in 2008 because of the economic crisis
and this trend continued till 2009, despite the signs of economic recovery. Growth in average
wages reduced from 4.3 % in 2007 to 1.4% in 2008. Real wages in the first quarter of 2009
also fell in more than half of 35 countries, compared to the annual average of 2008. The
Wage deflation deprives the national economies of many countries that are in need of it and
also affects confidence of these countries very badly. The Minimum wages is an important
policy tool for social protection and proposes that minimum wages be combined with other
income support measures and/or tax reductions. [ILO, 2009].
OBJECTIVES
1. To analyse the impact of recession on operations of Indian Airlines industry.
2. To analyse the reforms that were undertaken by Government of India to curb
recession on Airline Industry.
HYPOTHESIS
H0: 1. Operations of Indian Airlines industries have not been affected by Global Recession.
H0: 2. There is no effect of Indian Government Reforms of to curb the impact of Global
Recession on Airline Industries.
RESEARCH METHODOLOGY
The data is collected through interview method, questionnaires and through numerous
intellectual articles and journals. For the purpose of data analysis, ten aviation companies are
selected which manufactures the domestic and international aircrafts, war planes, and also
spare parts through ancillary industries. Among these ten airlines there are few foreign
airlines who have their offices in Mumbai and other metropolitan cities of India. Since these
foreign airlines contribute foreign remittances to India, it is included in the airline industries.
VOLUME NO.2, ISSUE NO.11 ISSN 2277-1166
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DATA ANALYSIS
Table 1. The Total Thriftiness of the Airline Industry with respect to operations of Indian
Airlines industries
Year 2004 2005 2006 2007 2008 2009 2010 2011
Parameters
Budget 1.17 1.72 1.50 1.60 2.38 1.83 1.92 2.15
Procurement 1.16 1.2 1.88 1.96 2.78 2.02 2.13 2.46
Production 0.57 0.83 0.95 1.04 1.33 1.33 1.42 1.59
Sales 0.50 0.67 0.84 9.323 1.15 1.04 1.05 1.12
Net Profit 1.51 1.89 2.19 3.03 4.12 2.72 3.37 3.78
Taxes paid 1.21 1.40 1.35 16.26 1.76 1.44 1.48 1.81
Number of Employees 33.17 39.10 41.26 42.91 47.39 27.98 29.27 32.17
Total Assets 2.83 3.44 3.46 3.83 4.05 3.19 3.84 4.16
Total Liabilities 2.80 3.41 3.74 4.26 4.46 3.64 3.86 4.20
Investments 0.97 1.26 1.52 1.77 1.95 1.59 1.91 2.0
Performance of shares/ 1.58 1.89 2.10 2.51 2.55 2.39 2.88 3.05
stocks
Tourist Arrivals to India 2.89 3.39 3.85 4.28 4.43 4.02 4.04 4.35
Tourist Departures from 2.85 4.00 4.21 5.26 5.10 4.80 5.97 6.57
India to other countries
No. of aircrafts 0.58 0.8 0.97 1.07 1.31 1.21 1.24 1.38
manufactured
Parts of Aircrafts i.e 0.59 0.88 1.00 1.08 1.29 1.27 1.23 1.37
spare parts
Equity 5.11 5.85 6.31 6.56 6.63 5.89 6.68 6.96
Fares of air travel from 0.92 1.13 1.21 1.42 1.46 1.19 1.26 1.58
India to other countries.
Fares of air travel from 2.28 2.94 3.76 5.79 7.38 4.48 5.54 6.67
other countries to India
Source: Collected through Questionnaires and Interview method
Figure 1. The Total Thriftiness of the Airline Industry with respect to operations of Indian
Airlines industries
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Table 2. The Total Thriftiness of the Airline Industry towards the Progress of Indian Airlines
industries by Implementation of Government Reforms
Parameters Impact of Impact of Impact on Impact Impact Risk of
Parameters Budget Budget future of rates of rates second
on on projects on on raw on raw recession
Aviation Aviation Aviation materials materials on
Industries Industries Industries before after Aviation
before after during recession recession Industries
recession recession recession
Yes 0.071 0.083 0.090
No 0.057 0.035 0.019
10% 0.013 0.08
15% 0.1
20% 0.080
25% 0.031
30% 0.010
5% 0.035
12% 0.023
15% 0.015
17% 0.048
Source: Collected through Questionnaires and Interview method
Figure 2. The Total Thriftiness of the Airline Industry towards the Progress Of Indian
Airlines industries by Implementation of Government Reforms
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Interpretations - The Total Thriftiness of the Airline Sector- The Air Sahara, Cathay Pacific
Airways Ltd., Emirates Airlines, Go air, Indian Airlines, Indigo Air, Jet Airways India Ltd,
Lufthansa German Airlines, Qatar Airways and Spice jet are as follows:
The budget of the Airline Industries was diminishing due to the present market
conditions that impaired the financial forecast of most of the Airline Industries.
The Airline Industries could not produce enough goods to satisfy the demand as the
price of procurement was expensive. The Airline Industries had to decline their
commercial and industrial activities due to global recession.
Most of the airline ancillaries were closed once in a week to rationalize their
production costs. The revenues of the industry were declined from dollar five two
five billion in 2008 to dollar four fifty five billion in 2009 due to rising fuel prices
and exceptionally weak yields. The sales of most of these companies were also
declined and many takeovers/acquisitions had to be put on hold.
The numerous reforms are undertaken by many Ancillaries to increase their sales so
that their profit margin increases.
The Airline Sector had to investment more on assets in order to earn more sales, to
generate employment for the people of India and to improve the economy of India.
The Passenger traffic was declined by four per cent and cargo by fourteen per cent
for the year two thousand nine. Cargo utilisation remained at less than fifty per cent
despite the removal of two twenty seven freighters from the global fleet.
The fall in passenger traffic led to twenty per cent drop in demand for premium
travel to India. At the time of sluggish economy the aviation turbine fuel prices were
shooting up. Around the Globe the airline sector had a loss of dollar eleven billion
in fuel bill in the year two thousand nine.
The increase in spare parts and tools consumed is due to higher level of production.
The fluctuations in the operations of the airline sector from 2004-2010 vary mainly
due to global recession in 2009 .
The Fares of the Airlines was affected after recession because the airline sector
faced challenges like increase in the price of Fuel, fewer competent workforce,
encumbrances of debt and competition in fixing fares among the airline industries.
The development of future projects was put off due to the deceleration of the
economy.
Though the rates on raw materials before recession was moderate and the suppliers
were in a position to provide commissions and discounts to their regualr retailers
and customers. But after recession the rates on raw materials had drastically changed
as most of the suppliers had to close down their units as they could not afford to bear
huge loss.
There are chances of risk of having second recession which might wipe out many
industries of Airline Sector.
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HYPOTHESIS RESULTS
H0: Operations of Indian Airlines industries has not been affected by Global Recession.
Table 3.Hypothesis Results of Parametric Test –T Test
Table Value=10
Table
Observed or
Value
Particulars Mean Standard Calculated T
at 95%
Differ Deviation Df value at 95%
confide
ence Difference confidence
nce
level
level
Budget 1.2 3.6 9 1.11 2.262
Procurement 2.5 7.5 9 0.99 2.262
Production 2.5 7.5 9 0.99 2.262
Sales 2.2 7.9 9 0.96 2.262
Net Profit 5.2 13.2 9 0.85 2.262
Taxes paid 5.0 12.0 9 0.99 2.262
Number of Employees 82.6 217 9 0.86 2.262
Total Assets 9.0 32.2 9 0.99 2.262
Total Liabilities 8.6 25.2 9 1.00 2.262
Investments 3.8 12.20 9 1.00 2.262
Performance of shares/
3.1 9.9 9 1.00 2.262
stocks
Tourist Arrivals to India 3.63 11.40 9 1.00 2.262
Tourist Departures from
7.2 24.10 9 1.00 2.262
India to other countries
No. of aircrafts manufactured 2.0 8.0 9 0.96 2.262
Parts of Aircrafts i.e spare
2.5 7.2 9 1.00 2.262
parts
Equity 10.9 20.2 9 1.00 2.262
Fares of air travel from India
5.2 3.1 9 1.00 2.262
to other countries.
Fares of air travel from other
1.0 5.0 9 1.00 2.262
countries to India
Source: Collected through Questionnaires and Interview method
Interpretation- Since the calculated or observed value of T test at 5% level of significance
is less than the Table value for all the parameters .Hence we accept H0 and conclude that
Operations of Indian Airlines industries has not been affected by Global Recession.
H0: There is no effect of Policies of Government to curb the impact of Global Recession on
Airline Industries.
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Table 4. Hypothesis Results of Parametric Test –T Test
Observed or
Table
Calculated T
Mean Standard Value at
value at
Particulars Differ Deviation df 95%
95%
ence Difference confidence
confidence
level
level
Impact of budget 0.2 0.6 9 1 2.262
Impact of Recession on
0.6 2.2 9 1.2 2.262
future projects
Impact of rates on raw
1.1 5.8 9 0.7 2.262
materials
Risk of Second Recession 0.5 1.3 9 1 2.262
Source: Collected through Questionnaires and Interview method
Interpretation- Since the calculated or observed value of T test at 5% level of significance
is less than the Table value for all the parameters .Hence we accept H0 and conclude that
Operations of Indian Airlines industries has not been affected by Global Recession.
SUGGESTIONS
Strategic alliances need to be encouraged by the government of India. The top two
carriers of India, Jet and Kingfisher together accounted for 60% of the market
entered into a strategic alliance to share ground staff, route information, planning
and frequent flier programs. The attempts were also made to include Air India in the
deal, which would have taken the joint market share of the group to around 70-75%.
The move was aimed at targeting operational costs by trimming staff and sharing
logistics, joint fuel management, code sharing, cross utilization and joint training for
staff on common aircraft types.
The Airline Industries have to emphasis on advertising during economic downturn as
it provides an opportunity to find good number of clients who have projects or
assignments for which the company’s services may be required.
The Airline industries have to frame contingency strategies in adverse times well in
advance before it occurs. This helps the companies to survive turbulent times.
The Research and Development has to be focused on priority by the Airline
industries to meet the diverse needs of their recessionary customers who seek greater
value from their spending. The companies must market their innovative products to
gain advantage over their competition.
The Government of India has to focus on Pilot flying, rest hours and pilot pay
structure.
The Number of operational fleet in airports needs to be increased.
Though Indian Airline industry holds a promising future compared to the premium
counterparts due to the huge population, increased affordability and making the
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services accessible to the common man, the sector is highly susceptible to turbulence
in economy.
CONCLUSIONS
The Airline industry has grown at a compounded annual growth rate of 25% in 2010. The
growth of India’s Airline sector has potential to absorb up to US$120 billion of investment
by 2020. However, we must equalize the demand for Airline services and the ability of our
Airline system to meet that demand. India must prepare a blue print for the expansion of
system capacity while maintaining safety, security and the environment. We must develop a
road map for infrastructure development beyond 2010. By Assuming a 6% GDP growth and
a 1.5 times multiple, it is estimated that domestic aviation traffic alone will grow 2.5 times
from the current 40 million passengers to 100 million passengers by 2020.The key drivers
remain better cost management and higher aircraft utilization that helps to keep the technical
reliability high and operating costs low.
REFERENCES
1. Srivatsav, 2009 “Effect of Global Meltdown on the Indian Economy”.
2. ILO, 2009, Global Wage Report.
3. Ganatra Kishore, et al. (2007), A Report on - Study of Negotiation Strategies in the
Indian Civil Aviation Industry through an Analysis of the Air Deccan – Kingfisher
Airlines Deal
4. Gohain, K, “Airline Operations Regulatory Issues in India.
5. Kumar, Nirmalya and Rogers Brian, 2000, easy Jet: The Web’s Favourite Airline,
Global Marketing, Business world Casebook.
6. Warier, Sudhir (2007), “Merger’s & Acquisition in the Indian Aviation Industry – A
Strategic Perspective”, AIMA Journal of Management and Research, Volume 1, No 2
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